A weaker USD helped boost investor appetite in commodities. However, uncertainty over US trade policies kept the gains limited.
By Daniel Hynes
Market Commentary
Crude oil fell amid ongoing concerns of rising OPEC supply. An Interfax reports cited Kazakhstan as saying that the OPEC+ alliance is set to hike output at a meeting on Saturday. The exact size of the hike is to be announced at the meeting but is expected to be larger than currently scheduled. OPEC met on Wednesday to discuss the current production quotas, with members ratifying current levels for this year and next. They also agree to develop a mechanism for setting production baselines in 2027 based on their maximum sustainable capacity. Sentiment wasn’t helped by a selloff across broader markets after data showed the US economy shrank at the start of the year. US inventory data added a little light to the gloomy outlook. Crude oil inventories fell to 440.4mbbl after the largest weekly decline in about two months. Stocks are now at their lowest levels since early May. Distillate inventories returned to the lowest levels since April 2005 and was near its lowest since 2003 on a seasonal basis. More encouraging was a huge spike in gasoline implied demand going into what’s considered the start of the US driving season. The gain of nearly 1mb/d was the third highest weekly increase in the last three years.
Global gas prices extended recent falls amid persistent concerns over demand. Europe is gradually adding gas to depleted storage sites. This is being aided by weak demand amid relatively warm temperatures. On the supply side, flows from Europe’s largest gas provider, Norway, are slowly picking up after seasonal maintenance. This helped lower European gas futures and North Asia LNG prices despite signs of stronger demand for the latter. Egypt is said to be adding another LNG import vessel to its fleet. It has leased import terminals over the past 12 months to meet rising domestic demand that is not being met by declining local gas output. Thailand also bought its first spot cargoes in more than two months, with two LNG shipments for delivery in July. Its 30-day moving average for LNG imports is 28% above the five-year average for the first time this year.
Copper was up in early trading following a US trade court ruling that blocked some of President Trump’s import tariffs, sparking a risk-on tone across market. Those gains were erased after the soft US economic data raised concerns over demand. The outlook looks better in China, where another summer of extreme heat could put its electricity network under pressure and boost demand for copper. China’s National Energy Administration anticipates peak electricity demand will be higher this summer than last year due to warmer temperatures. At the same time, China’s ongoing electrification is pushing electricity demand up faster than economic activity. This is increasing sales of air conditioning units, an important driver of copper demand. The strong demand for electricity is also driving investment in grid infrastructure, which makes up a third of China’s total copper consumption.
Gold rebounded as easing trade tensions and weak US economic data pushed the USD lower, sparking increased investor demand. This was aided by a rally in bonds, which saw the yield on 10y US Treasuries fall.
Chart of the Day
According to China’s NEA total electricity consumption in 2024 reached 9,852bn KWh, a 7% increase from 2023. It recently announced that it expects peak electricity demand to be about 100GW higher this summer than last year as a result of the high temperatures. Part of this will be driven by increased cooling needs. The number of ACs per household has risen from 0.7 in 2013 to 1.4 by 2023, according to China’s National Bureau of Statistics. In regions that experience hot and humid conditions, that number is said to be as high as 2.
Data source: Commodities Wrap